Long-income vehicle hits LSE

A new listed company focusing on long-term secure income is to launch on the London Stock Exchange. LXI REIT, chaired by Stephen Hubbard, UK chairman of CBRE, hopes to raise £200m from the listing. It is the latest of a growing number of firms to invest in secure assets and will target what it sees as long-term, inflation-protected commercial property. Assets acquired will have 20- to 30-year leases, institutional clients and upward-only rent reviews. The REIT will take on no development activity. Target LTVs will be 30%, with a maximum of 35%. Hubbard said: “In this low- yield environment with higher inflation looming on the horizon, the company’s intention is to deliver attractive, inflation-protected income and capital returns, underpinned by a secure and diversified portfolio of property investments let or prelet to a wide range of financially strong tenants on long-term and index-linked leases.” The firm said it already had a substantial pipeline and expected to invest its initial capital within six months of its IPO. LXI REIT will target a minimum annual dividend yield of 5%. The net total shareholder return is expected to be 8%. The company will be managed by LJ Capital and advised by LXI REIT Advisors, which will receive an annual fee of 0.75% based on market capitalisation, and no performance fee. Peel Hunt is sole sponsor, broker, placing agent and intermediaries offer adviser. LXI directors John White is former investment partner at Cushman & Wakefield and co-founder of Osprey Equity Partners (part of the LJ Partnership, which has more than $4.5bn of property under management) Simon Lee is former solicitor at Slaughter & May and co-founder of Osprey Equity Partners Stephen Hubbard is UK chairman, CBRE Colin Smith is former chairman of Poundland, currently chairman of Hilton Food Group John Cartwright is chief executive of AREF Secure asset investors Secure Income REIT Led by: Nick Leslau Launched: 2014 Market cap: £730m Civitas Social Housing Led by: Paul Bridge Launched: November 2016 Market cap: £350m Impact Healthcare REIT Led by: Rupert Barclay Due to launch: March 2017 Target cap: £180m Comment: REITS specialising in secure-income assets are attractive – but hurdles must be overcome Hemant Kotak, managing director, Green Street Advisors This idea of long, secure income with an element of inflation-linked leases is very attractive. Much of property’s return comes from income, and in our low-yield environment, the income aspect becomes ever more important. Although the underlying investments might be attractive, there are problems, and one of them is that the REIT doesn’t have a portfolio that it is listing with. Acquiring properties will take time and there will be a drag on returns. The REIT is also trying to get off the ground with an IPO that is small in scale, especially compared with Secure Income REIT. There are a few advantages with scale. You can shed the cost burden of managing a portfolio over a larger platform and you potentially have better access to debt financing. But it can be done. Tritax Big Box went from a standing start to £1.5bn. Some investors, however, will choose to wait on the sidelines until the company grows in scale and has a bit more of a proven strategy. The fact that it is a cash box, externally managed, and has low liquidity are all hurdles, but the underlying investment is attractive.